Freedom Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 20 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 35 percent in the month after the sale, and the remaining 15 percent two months after the sale. Sales for the quarter are projected as follows: January, $60,000; February, $30,000; and March, $90,000.
Accounts receivable on December 31 were $45,000.
-Refer to the figure.How many dollars are expected to be collected in December?
A)$23,500
B)$26,500
C)$30,500
D)$37,000

Question

Quizplus · Accepted Answer

December collections consist of the following:1. 50% of December sales ($60,000 x 0.50 = $30,000)2. 35% of November sales ($30,000 x 0.35 = $10,500)3. 15% of October sales ($45,000 x 0.15 = $6,750)Total December collections = $30,000 + $10,500 + $6,750 = $47,250

Freedom Manufacturing Company Needs to Know Its Anticipated Cash Inflows